In my experience, inaction on restraining carbon dioxide emissions does not stem from insufficient understanding of the science or insufficient fear of the consequences of warming. Instead, it is more due to excessive fear of the nature of the solutions… The problem is not too much capitalism, but rather too little, and even a lack of faith in the power of the ingenuity unleashed by capitalism to solve big problems… Sweden is emphatically not socialist. In fact, all this has been carried out within a vigorous free-market economy that fosters innovation and entrepreneurship…

In short, a thinly disguised Carbon Tax Now. He even quotes Timmy with something like approval.

The wacko right wing is convinced that GW is an evil socialist plot to steal their precious bodily fluids, and therefore chase themselves down bizarre ratholes trying to disbelieve the science. Meanwhile the wacko left wing do their best to foment this attitude on the right wing, by insisting on ever more regulation and stupid doomed nonsense like the ETS1. Both sides are doing the world a disservice by refusing to confront reality: on the right, by denying the science; on the left, by denying the economics.

Notes

1. This is far too casually written, which is my way of saying “well it might be wrong but I’m not going to admit that explicitly”; I was pulled up by #3. The regulation criticism is fine – the left is far far too keen on regulation as a solution2; as for the ETS, I suspect the left prefers ETS to a carbon tax because the ETS is stupider; but the alternative view – that the left dislikes the ETS because it is a market based mechanism – is also defensible and even more deeply stupid of the left.

2. Limited, market-based, regulation is fine. But it should do its best to avoid being intrusive, and to allow people to solve the problem in whatever way seems best to them, rather than mandating exact solutions.

Like this:

Related

87 thoughts on “How to decarbonize? More free market!”

The goal is a system which can minimize gaming. Trading schemes maximize gaming, A broad tax does does a much better job of minimizing it. Of course Mario and Co will try and manipulate the carbon content of everything to minimize the tax

I think your definition of left is skewed, probably because you consider your own views are in the centre rather than right of centre and from that vantage point The Guardian and the big mainstream environment groups appear to be The Left.

The left have consistently opposed market based solutions like the ETS. e.g. Naomi Klein who is the target of Pierrehumbert’s criticism in his article.

[That was rather casually written on my part. If I accept what you say above – that the left have opposed market based solutions – then I would have been even more harsh on them -W]

It really does highlight how your propensity for abuse hides the nuances of opinions you disagree with.

“>BAS: So you’ve never been anti-market?

Klein: I think that what I’ve been saying gets misinterpreted; I’ve never made the argument that there’s no role for markets. But I do argue that leaving it all to the market is madness. We can’t just say, “Oh, the price of renewables is going down so we can relax; the market is doing its work of creative destruction, and the use of fossil fuels will go the way of the dodo.”

The market can do a lot, but it just can’t get us off of fossil fuels by mid-century—or even the end of the century. All by itself, it cannot get us to zero emissions. It just can’t do it, because the fossil fuel companies are so strong now. They’ve had so long to accumulate economic and political power, which translates into the power to slow us down. That’s what we saw with Exxon, they caused us to waste decades. And they’ll waste decades more if we let them.”

Well said Naomi.

[That’s a typical, and in my view stupid, argument from N. It completely misses the point of what RP is saying. We haven’t yet tried a proper market based solution -W]

“The wacko right wing is convinced that GW is an evil socialist plot to steal their precious bodily fluids, and therefore chase themselves down bizarre ratholes trying to disbelieve the science. Meanwhile the wacko left wing do their best to foment this attitude on the right wing, by insisting on ever more regulation and stupid doomed nonsense like the ETS.”

I think you’re getting closer to the truth, William.
Especially with that latter part.

A big part of Swedish decarbonization has been a massive raft of regulation, especially building regs. That’s why Swedish homes are so comfortable. Now you can call that “free market” if you like, but you are likely to be misunderstood.

[“big” is a vague term; you might mean anything from 10 to 90 percent. And remember that regulation is fine by the free market: by all means mandate better building standards -W]

[It is what RP is trying to tell people; sadly, they don’t want to hear it. Slightly relatedly, this essay of Krugman’s came my way just recently (http://web.mit.edu/krugman/www/negot.html) which I just about no-one, right or left, wants to hear -W]

Given the scale of the task we face we’re going to need a variety of approaches, neither regulation or some kind or carbon pricing mechanism (whether a tax or ETS) will be sufficient in themselves. I don’t think either right or left have a monopoly of widom regarding carbon reduction policies.

Building regulations as mentioned by Nick Barnes are a good example of where sensible regulation can help. It’s easier to reduce your carbon tax bill if you’re in an energy efficient building.

So tax is OK and regulation is OK. What, in your view, distinguishes free markets from other markets?

[I’ve tried to clarify that in an update with notes. I think your “tax is OK and regulation is OK” is too brief a summary to be accurate. Some taxes are better than others – or so I’m told; there is theory for this that I’ve never read. I could point you at Timmy for an exposition, if you like. And is ETS tax or regulation? Perhaps that its hard to tell is one reason why it is so rubbish. Regulation, too, can be bad or good. For example, Venezuela’s price regulation is very very bad indeed -W]

I have read it. In Australia where we had a social democratic party, the Australian Labor Party since the late 1800s. I do understand the difference between a society shaped by social democracy and actual “socialism”. 🙂

And our major “left” party, the Australian Greens would I suspect probably consider Sweden’s social policy close to their policy ideal.

From Ray’s article.

>The term traditionally used in Sweden is Folkhemmet – the people’s home. The term was introduced in 1928 by Social Democrat leader Per Albin Hansson and meant to encapsulate the Swedish vision of a cooperative, capitalist society in which all work together to provide a good life for all.

>It involves a high level of public services delivered efficiently either directly by the government or via private intermediaries in cases where collective action can deliver essential services better than unguided private enterprise. It recognizes that when it comes to providing essential services such as higher education, public transit, or health care, sometimes the “invisible hand” of the market is not just invisible, but entirely absent. Major Swedish social benefits include universal access to health care under a single-payer system, high-quality day care and preschools provided at affordable rates, tuition-free university education, and a full year-and-a-half of paid parental leave. On top of that, every working Swede is entitled to 38 days of paid vacation, plus 18 national holidays – and none of that needs to be used up to provide sick leave or time off to care for sick children, because that is all covered under a separate benefit program.

There’s no contradiction between being a social democracy and having a free market economy. This is what RP says about Sweden

It recognizes that when it comes to providing essential services such as higher education, public transit, or health care, sometimes the “invisible hand” of the market is not just invisible, but entirely absent. Major Swedish social benefits include universal access to health care under a single-payer system, high-quality day care and preschools provided at affordable rates, tuition-free university education, and a full year-and-a-half of paid parental leave. On top of that, every working Swede is entitled to 38 days of paid vacation, plus 18 national holidays – and none of that needs to be used up to provide sick leave or time off to care for sick children, because that is all covered under a separate benefit program.

That to me is pretty much the definition of a social democracy. Both free-market fundamentalists and dyed-in-the-wool socialists could take something from Sweden’s example.

[Actually you may well be right, and I may well agree with you. My favourite source for these things, Timmy, often points out that what is often presented as a single continuum is actually two dimensional: there’s free market vs centrally directed, and capitalist vs socialist. There’s a tendency to assume these must be aligned onto a single free/cap vs dir/soc axis, but that’s not really true -W]

Well, I can’t claim to speak for “the left” (whatever that chimerical beast might be), but I’d certainly consider myself on the left… I was always opposed to ETS on the grounds that it was largely toothless and seemed designed to be gamed – in short, it was stupid. I’ve long believed that a carbon tax is, at the very least, an essential component to any effective solution to the problem. Do I need to hand in my membership card or something?

I’m also not entirely convinced that it was “the left” that insisted on or designed the ETS, unless you have a rather idiosyncratic definition of “left”.

Carbon taxes seem more likely to be reasonably implemented, but like most things, the details matter a lot. A poorly implemented carbon tax (like the proposed Washington State tax) isn’t going to be better than a well run trading system.

The SO2 trading system in the USA has worked well. It was a “right” policy when implemented, and the “right” has turned against it, and now opposes it.

I don’t see how relying on “the 17th-century Peace of Westphalia, which ended the Thirty Years’ War by establishing the rule that states may do whatever they like (such as imposing the sovereign’s religion) within their borders” [Krugman, op. cit.] offers any hope of dealing with global issues — climate, antibiotic resistance, persistent chemicals that bioaccumulate.

Perhaps we need to revisit that Westphalia principle in ways Krugman hasn’t figured out yet. He’s only recently beginning to approach being cynical enough, he’s still astonished to find that increasing wealth doesn’t make people smarter or kinder or behave better toward others.

Hank – “He’s [Krugman] only recently beginning to approach being cynical enough, he’s still astonished to find that increasing wealth doesn’t make people smarter or kinder or behave better toward others.

Craig Thomas @#6 — Wrong. Yes, some methane in addition to carbon dioxide but most assuredly not carbon. Some forms of carbon are useful soil amendments but one never finds it in the atmosphere, trapping heat.

Free-market capitalism did not build the nuclear reactors which are the major reasons for countries like Sweden and France having very low carbon intensities in their power sectors. I suspect that the public funds necessary for those will also be needed for the storage solutions needed as renewables penetration increases.

I have no doubt that capitalism will take all the credit though!

(FYI, not anti-capitalist, just anti “-ism will solve all our problems” )

Before getting too excited about the Swedish experience, some realities need to be spelled out.

1. The reduction in energy emissions since the early 1970s is almost entirely due to growth of nuclear power and biomass in energy supply. The nuclear experience may be transportable to many other countries. Not so much for the biomass experience.

3. The carbon tax had nothing to do with nuclear deployment. All Sweden’s nuclear power plants were in commercial operation by 1985. It did have a lot to do with Sweden’s long term engagement with nuclear power. In 1964 a small heavy water reactor was supplying heat to Stockholm and the first light water reactor began operation in 1972. It was the first western design for a LWR that had no technology licencing from the US.

Many details about Sweden’s carbon tax seem to be conveniently ignored. It never applied to electricity generation (pointless anyway as nuclear+ hydro had already done the job). It was accompanied by large scale cuts to energy taxes and industry had much reduced rates. The number one outcome seems to be a considerable growth in the use of biomass – mostly for heat.

Something also needs to be said about Sweden’s stupid punitive nuclear tax that represents about one third of the operational costs of nuclear power. The sole point seems to be to drive nuclear power out of business. It has nothing to do with waste management or decommissioning costs which are separately funded.

Ray Pierrehumbert makes a throw away remark about the impending loss of 2.7 GW of baseload nuclear being “easily” replaced by wind plus “abundant” pumped hydro. You can define easy in any way you like, but not abundant. In fact there is very little pumped hydro in the whole of Scandinavia – most of Europe’s pumped hydro capacity is in Germany, France, Spain and Italy. It’s largely a myth in Scandinavia despite all sorts of claim of what might be.

None of this is an argument against a carbon tax as such, but is does show that it’s all a bit more complicated than just a carbon tax.

“Meanwhile, in the United States, Republicans have responded to the utter failure of free-market orthodoxy and the remarkably successful predictions of much-hated Keynesians by digging in even deeper, determined to learn nothing from experience.

In other words, being right isn’t necessarily enough to change the world. ….”
______________
Well, duh. Took him long enough. Like I said. Decades of making recommendations and watching them be ignored and making more recommendations. Cynical enough yet?

Hank – Krugman was still at MIT *as a student* in the 70s. The 80s is when he produced the economic ideas and papers that won him his numerous awards — and most of that work had to do with international trade. He wrote nothing during that time that I remember that could be characterized as believing the wealthy are morally superior to those less well off.

ETS = regulation sets the amount of CO2 emitted, and free market determines the best ways of reducing Co2 to get there.
tax = free market determines the best way of reducing Co2, and determines what amount of Co2 will be emitted.

ETS has the marketing advantage of not being a tax. Psychologically the Co2 level determined by regulation in an ETS may give more of a sense of control and purpose. Performance management in large organisations likes to set fixed targets for people to achieve, rather than setting up incentives to achieve as much as possible and seeing what they manage to achieve.

Oh, I know, I’m recalling something he wrote early in his career, during one of the economic scandals, when he seemed honestly surprised that the laws drafted by rich people worked to their advantage. Not cynical enough.

In today’s column, he writes: Apr 20
101 Boosterism

I see that @drvox is writing a big piece on carbon pricing – and agonizing over length and time. I don’t want to step on his forthcoming message, but what he’s said so far helped crystallize something I’ve meant to write about for a while, a phenomenon I’ll call “101 boosterism.”…

Good point on the complexity of the energy situation, though I did think Norway had a lot of hydro that was being used as a renewables gap-filler. Not exactly pumped hydro, but working in a comparable way.

What is very interesting about Prof Pierrehumbert’s paper is that he takes, to my mind, a very realistic view of nuclear:

“Sweden’s cautious approach to nuclear power stands in contrast to Germany’s foolish decision to abruptly shutter their nuclear power plants, which has resulted in a significant setback to their progress on decarbonization.
The retention of nuclear power in Sweden also reflects recognition of the fact that large-scale hydropower, while benign to the climate, is far from environmentally benign generally ”

And

“compared with the environmental disaster of large-scale hydropower (to say nothing of coal), nuclear really does not look too bad.”

An issue I tend to have is having people nail down what they mean by “free-market solution”. To my eyes, it usually seem like free-market enthusiasts define it as such:
– If it’s good, it’s a “free-market solution”
– If it’s bad, it’s not a “free-market solution”

I cannot help that is also the definition you (and Ray Pierrehumbert) are running with. You state “remember that regulation is fine by the free market” (i.e. good regulations are good and market-based solutions) but equate ETS to being “intrusive” on the market (i.e. ETS is bad and is a non-market-based solution).

[That’s not the definition I, or RP, are using; and I don’t think it is reasonable to suggest that it is. I’m using the conventional definition, whatever that is -W]

First the former – regulations might be “fine” by the free market but it doesn’t mean that regulations are considered a “free-market solution”. It would be odd to classify something that restricts the market to be “free-market”. So while it’s not antithetical to the “free-market”, regulations are a step towards the “regulated market” end and a step away from the (idealized) “free-market” end of the spectrum.

[As I said above, it depends on the regulation. Venezuela’s regulations that specify the price at which goods may be sold at is not a free-market solution, clearly. A regulation that says that everyone needs to achieve a certain level of energy-efficiency in their house is rather more intrusive; one that says you must have triple-glazing even more so -W]

Now the latter – ETS was hailed as the “free-market solution” to climate change by most, especially on the political-right (George Bush Sr. being an example). Now, it is fine if, in hindsight, you want to say those free-market enthusiasts were wrong about calling ETS a “free-market solution” but I suspect that is because you have the benefit of hindsight (i.e. because it was shown to be bad, it couldn’t possibly have been a “free-market solution”!). While ETS might not be a pure “free-market solution” in your mind, I’d find it hard to imagine that regulations are a more pure “free-market solution”. Certainly, ETS do not tell people HOW to go about solving climate change. Note that I disagree with ETS as much as you do. However, unlike you, I see it as more of a “free-market solution” than not and certainly more of a “free-market solution” than regulations.

[I’ve been saying the ETS is terrible for years. I see no reason to think that Bush was competent, so no you’re not allowed to use him as an exemplar of wisdom. OTOH, I see no evidence for your assertion that Bush hailed it -W]

You’ll note that classifying Sweden as an example of “free-market system” also, conveniently falls into the “good=free-market, bad=not” definition. Tuition-free university is an example of a “free-market system”? High taxes to pay for social welfare programs is an example of “free-market system”? universal, single-payer healthcare is an example of a “free-market system”? Under that definition, and only under that definition, I suppose it is.

[Read Timmy -W]

Pierrehumbert states, “if [higher taxes to provide social welfare programs] is to be called “socialism”, all I can say is that a lot of countries would benefit from a lot more of it”. In a nutshell, that is socialism. Moreover, it’s definitely more socialism than free-market capitalism. So while Sweden isn’t socialist to a tee, Pierrehumbert is praising Sweden’s socialist aspects, while claiming “Sweden represents the opposite of socialism”. (Also, Pierrehumbert inexplicably compares Sweden to Marxist communism, concludes it’s not Marxist communism, therefore it’s not socialism, therefore it’s free-market capitalism.)

More to the point (of the article), free-market capitalism is largely antithetical to combating climate change. For starters, the continuous growth of consumption is a staple of free-market capitalism. Conservation doesn’t exactly jive with this. Sure, we might be able to get to renewable energy generation but that doesn’t factor in the deforestation and environmental issues associated with resource extraction that consumption drives.

Secondly, consumers in free-market capitalism are mainly driven by costs and thusly produces are driven to reduce costs (while keeping quality high). As coal is likely the cheapest form of energy production (and is reliable), without the imposition of forcing the costs of externalities onto producers (and consumers), coal wins out in free-market capitalism. More generally, it is cheaper to produce goods without considering environmental impacts, so environmental protection is an added cost and largely seen as a limited value to the consumer (who is blind to the production), so this issue applies to all goods. The imposition of forcing the costs of externalities onto producers (or consumers), ain’t exactly free-market.

Thirdly, free-market capitalism is brilliant at finding ways of dodging things like carbon taxes; so we can expect the market to do a brilliant job at avoiding actually reducing emissions (which is partly your concern about ETS). So when companies try to move their production to countries without carbon taxes/regulations, we’ll likely have to apply carbon tariffs on imports (to attempt to push them to adopt carbon taxes/regulations), that ain’t exactly free-market.

Having said all this, you don’t necessarily need state run economies to combat climate change. If that is all you (or Pierrehumbert) are trying to say, so be it. However, what you do need is a much, much more regulated and controlled market that forces producers and consumers to make environmental conscientious decisions. If you (or Pierrehumbert) call the increased restriction of the free-market a “free-market solution” I think you’re either confused or using the “good=free-market, bad=not” definition of “free-market solutions”.

[Your man just doesn’t understand. He goes wrong at “And for a month, things are good. And then some of the Army personnel start to joke about how the cookies are getting smaller. A month later, there is a new, one page spec on cookies.” There, already, you have what is wrong with the govt approach, and he doesn’t even realise it. Blaming that on the private sector is silly -W]

(op. cit., that’s the case where environmental groups, electric power transmission companies, and California (among others) sued the then-Republican-administration’s Department of Energy for lowballing a new standard that was cheaper in the very short term and far more expensive over the lifetime of the equipment.

[I don’t know the details of that one. But it sounds like a mistake to me. If something is cheaper over the long run, and yet you have to force people to do it, then you’ve made a mistake somewhere. “Solving” the mistake by force is the wrong solution -W]

“[As I said above, it depends on the regulation. Venezuela’s regulations that specify the price at which goods may be sold at is not a free-market solution, clearly. A regulation that says that everyone needs to achieve a certain level of energy-efficiency in their house is rather more intrusive; one that says you must have triple-glazing even more so -W]”

I’m also of the opinion that regulations should aim to regulate the what, not so much the how.

However, this seems to miss my main point – both effective/good and ineffective/bad regulations are not “free-market solutions”. Replacing ineffective/bad regulations with effective/good ones is not a “free-market solution”. So advocating for a carbon tax in a thread called “How to decarboinze? More free market!” seems odd to me.

[I think you’re misunderstanding what a free market is. Or, we’re disagreeing on the definition. A free market isn’t a market where there is no government or regulatory oversight at all. Pretty well everyone outside the far-out Libertarianosphere agrees on that. So, regulations on food safety and so on are fine. But the argument of the free marketeers is that the government shouldn’t get in the way of buyers and sellers meeting to agree on a price. So, the government taxing everyone a 15% value-added-tax is OK. The government telling people to sell bread at price X isn’t. The govt imposing a carbon tax is fine -W]

There is a spectrum between a completely state controlled economy and an idealized free-market economy. While a carbon tax is far from a completely state controlled economy, it moves the society away from an idealized free-market economy. I argue that solutions that move you away from an idealized free-market economy are not “free-market solutions” and solutions that move you toward an idealized free-market economy are.

[I don’t really agree. There are so many govt interventions in the free-market already that a carbon taxing isn’t worth worrying about from that point of view -W]

“[I’ve been saying the ETS is terrible for years. I see no reason to think that Bush was competent, so no you’re not allowed to use him as an exemplar of wisdom. OTOH, I see no evidence for your assertion that Bush hailed it -W]”

[I’m not sure at all that you’ll find many or any free market enthusiasts praising cap-n-trade. Certainly not for CO2 – a carbon tax is obviously better – and not even for sulphates, which is what that article is discussing. As the least-worst solution then available, maybe. In a relatively homogenous industry where everyone gets the same pain it is much easier -W]

Regardless, this misses the main point. If you don’t consider ETS a “free-market solution” then neither is a carbon tax, which is arguably less free-market.

[It is? Well make the argument then, don’t just assert it. But remember to refer to our disagreement about the meaning of free market -W]

“[Read Timmy -W]”
Yes, Sweden does not have a state controlled economy. That doesn’t mean it’s not more socialist than, say, USA or UK. Again, it’s a scale. Furthermore, the core ideological difference between socialism and free-market capitalism is the emphasis between social welfare and individual opportunity (the economic system is much the mechanism to achieve that). Socialism favours the former, free-market capitalism favours the latter.

[Notice how you’re blurring different things. Its the multiple-axis thing. You’re creating a false dichotomy between socialist and free-markets, by blurring free markets into capitalism. Sweden is free-market socialist, if you like -W]

So to say that Sweden’s universal healthcare or tuition-free universities means “Sweden represents the opposite of socialism” seems rather odd. To insinuate that regulating or controlling the energy market to dissuade CO2 emissions for the collective good “represents the opposite of socialism” also seems rather odd.

The rest of my 1st post really gets into the difficulty of decarbonizing with “more free-market!”. I posed these issues because I really have no idea how free-market enthusiasts think that “more free-market” will address them (or even just not make them worse). The concept that “the power of the ingenuity unleashed by capitalism to solve big problems” will solve the issue of climate change seems unsupported to me (and my three points indicate why), especially as “the power of the ingenuity unleashed by capitalism” is what raised consumption levels to the point of them being a problem.

[Carbon tax -W]

Free-market capitalism is an exceptional tool for increasing profit and average wealth. However, it’s a blind, amoral (note: I said amoral (i.e. without morals), not immoral (i.e. evil)) algorithm for achieving that goal. It doesn’t care about exploitation of human or natural resources. In fact, it will search for means of exploitation when left to its own devices. This makes it a terrible tool, left to its own devices, for addressing consumption drive climate change. It needs to be, and can be, steered to work in line with our moral and societal goals (i.e. decarbonization). However, that steering requires more regulation and control of it, not less.

Some copacetic carbon tax rebates might sooth the savage capitalists of rconnor’s dreams , like making deductable corporate R&D expenditure focused on lowering the cost of alternative energy, and royalty and licensing income from such R&D’s success.

Thanks, I think I understand your position much better. You are correct that I might be blurring your views with more of the neo-libertarian view; my apologies.

“[Notice how you’re blurring different things. Its the multiple-axis thing. You’re creating a false dichotomy between socialist and free-markets, by blurring free markets into capitalism. Sweden is free-market socialist, if you like -W]”
Your point is well taken. As I said (with a silly typo), the economic system is [just] the mechanism to achieve [the social goal]. I believe a market economy is better than a state controlled economy at distributing goods and services. However, I feel that the market needs to be regulated and controlled to suit the needs of the society.

[Perhaps you do. And perhaps others think differently. This is an area where people of good faith can differ -W]

When it comes to decarbonization, I think much more regulation is required to address some of the issues I gave in my first post (the infinite consumption growth assumption of the market, the “race-to-the-bottom” cost driver and influencing non-participants across national borders).

I certainly don’t advocate for a state-controlled economy but I cannot see how we can achieve decarbonization with less regulation (i.e. “free-market solutions”). Your two-word answer was:
“[Carbon tax -W]”
Again, see my previous posts, I feel that’s not a “free-market solution”. Beyond that, it’s definitely not “more free-market!” than a market without a carbon tax.

More important than the semantic point of whether it’s a “free-market solution” or not, are you suggesting that a carbon tax alone is all that’s required to get to near zero carbon emissions? A carbon tax alone will push global energy production to be near 100% renewable, all transportation to be near zero emission, all land-use changes to plant at least a tree for each one they cut down, all resource extraction and refining to be near zero emissions? What about changes to consumer behaviour? (or do you feel that consumers are perfectly rational decision making agents that factor environmental concerns into each and every decision they make?) Will these changes happen fast enough to avoid the worst of the damages?

[I think you – like others, see my answer below – misunderstand the point of a carbon tax. It isn’t what you seem to think. See #42 -W]

That seems unlikely, it’s likely that more restriction measure may be required – such as stricter efficiency standards, progressive limits on fossil fuel energy generation, stricter land-use regulations,…, and tariffs on countries that don’t as well as economic support for countries that can’t. Is that “fine” by your definition of a free-market? Do you consider those “free-market solutions” as well?

That is really my take away point – while you might be “fine” with a carbon tax for free-market perspective, it almost certainly isn’t enough. The question then becomes how much restrictions and regulations on the market are you (and I and we) willing to handle? That is an open question that I don’t pretend to have the answer for. Certainly we wouldn’t adopt a police state to stay below 1.5 deg C. But we will need to place restrictions on the current state of the market to avoid 2 deg C. I think we evade the difficulty of addressing climate change if we think we can put in a carbon tax or say “more free-market!” and call it a day.

The actual and potential balancing of variable renewables by Norwegian hydro tends to be overstated and time frames to achieve the potential, understated. Here is an informative article about this, including the a list of existing, under construction or planned interconnects:

In this context, there is no “easy” replacement of nuclear by wind+hydro. All is does is remove badly needed firm capacity from the system. The value of nuclear lies not just in low emission energy, but also in firm capacity. There will not be nearly enough hydro available for the foreseeable future to replace nuclear’s role and that means more gas.

As I see it, this is the type of issue that is not adequately addressed by a carbon tax. What is needed is electricity market specific interventions.

Emissions trading in the USA was first adopted under George H. W. Bush in 1990 (Clean Air Act of 1990). More than 70 bills had failed in congress attempting to reign in the acid rain problem – at one point the Canadian Prime Minister jokingly suggested Canada may have to declare war on the US because of the US’s failure to act..

There should be no doubt that it was considered a marketplace approach – an alternative to regulation. It was and is consider to have been a monumental success.

[I largely agree with your words, but not with the implications I think you’re putting on them. The main implication that I think you’re putting forward – and which I definitely disagree with – is that the success of the acid rain solution means it should be applied to CO2 too -W]

To follow on emissions trading or a carbon tax or strict emissions regulations the question is one of goals, priorities and marginal propensities.

If the goal is to reduce emissions then only a ‘cap and trade’ scheme or regulations are can be guaranteed to do this. A carbon tax relies on the assumption that the tax will be large enough to deter burning carbon. But if the benefits of polluting outweigh the costs of the tax, then money will be raised, but emissions will not decrease.

[I think this is a common confusion, and it is one I used to share. Until I was enlightened by Timmy. It is probably best if I don’t repeat myself, so see http://scienceblogs.com/stoat/2011/06/06/carbon-tax-now-1/ starting perhaps at “There is a fundamental difference between carbon taxes and permits…” -W]

> If something is cheaper over the long run,
> and yet you have to force people to do it,
> then you’ve made a mistake somewhere.

It’s not people, it’s corporations that own and manage the big electrical distribution equipment, and the transformers have a lifetime of decades — lots of them are coming due to be replaced. That’s why the efficiency standard was and is an issue.

[I intended the word “people” to encompass corporations. Read it as “the people that make decisions in corporations” if it pleases you. It makes no difference, the idea is the same. Why would it be any different? -W]

None of the corporations could buy the high efficiency transformers unless their competitors also did. That’s why they — together with the environmental groups and California government — sued to improve on the lowball Republican Dep’t of Efficiency standard proposed.

[I don’t think you’ve read what I wrote. Of course they could buy these objects, and would have done so, had it made sense. That it didn’t make sense is the problem. Lacking details, I can’t tell exactly why not -W]

None of the electric utilities wanted to participate in a race to the bottom, but none of them dared spend the extra money on higher efficiency transformers unless they all did — so they cooperated with the environmental groups and Ca. government to sue to raise the minimum standard.

As Kevin said, the US electrical grid operation does not work on Econ 101 terms.

You really should look into this thing about people and companies banding together cooperatively to do things none are able to do individually. 1776 and all that.

Pollution trading schemes are not so much a left vs right issue, but a U.S.vs Europe issue. In Europe “traditional pollution” like NOx from power plants was dealt with by emission standards for individual power plants /factories, just like for cars on both continents. . In the US they invented the emission trading schemes. I suspect as a compromise to get the free market ideologues on board. The US then introduced the trading scheme idea into the climate negotiations. where they were accepted to keep the US on board. Because C02 is now implemented in the international climate treaties it has become the default climate policy tool also on a national level. Since in many countries right wing means inaction on climate change and left wing means wanting to do something about climate change (and thus using the default emission trading) it looks like emission trading is a left wing thing. Where in reality many progressives would prefer a budget neutral carbon tax that reflects the real external costs of climate change, strict emission standards on other pollution and the removal of (indirect) subsidies on fossil fuels.

[Careful with that last point. Removing subsidies on fossil fuels is an excellent idea, and you’d rather hope that left and right could agree on that. However, note that almost all direct subsidies are in places like Saudi Arabia or Venezuela; not in the West. Stretching “indirect subsidy” too far as a concept is a Left thing that will wind up the Right. You’re not allowed to stretch it to cover externalities from GW, if you’re already asking for a carbon tax; http://scienceblogs.com/stoat/2015/05/18/fossil-fuels-subsidised-by-10m-a-minute-says-imf/ -W]

William: there are more externalities than just that of climate change. Think about the effects of mountain top removal in the U.S. or the open pit mining of lignite in Germany. Then there is fine dust, mercury, NOx, SOx. These emissions are more or less regulated in most western countries, but still not enough to prevent damage to human health and nature. Do away or pay.

Especially in the U.S. fossil fuels enjoy tax cuts not available to alternative technologies. This works effectively as a subsidy. There are also more subtle subsidies regarding the fossil fuel infrastructure.

About the right being wound up: they are always wound up about anything that threatens the vested interests they represent. Centrist appeasement politics only move the right further to the right, making them even more touchy. Progressives should wind up the right much more, to get the right to the middle.

Heck, take the coal trains and oil tanker trains off the railroads — they get priority for good reason, they’re hauling so much mass you really don’t want to try stopping and starting them in transit to give way to anything else.

Subtract them and we’d have a decent high speed transportation system, rather than one that fits carrying people and other goods into the cracks and puts them on sidings often to clear the track for the heavy stuff.

> Of course they could buy these objects,
> and would have done so, had it made sense.
And their return on investment for the quarter and the calendar year tank, and their stock plummets as investment moves to their competitors who bought the less efficient and cheaper transformers. Note that _none_ of the utilities wanted that to happen, they _all_ wanted to do the longterm investment that the market punishes in the absence of regulation. People (and corporations) cooperate to create regulations for mutual benefit, sometimes. That’s what happened here. The utilities (and the environmental groups and the states led by California) said the regulation from the Republican DOE was inadequate — and got it changed.

All benefit. Except the one company that made the cheap inefficient transformers.

Seriously, don’t just read what I write. Look into it.
Yes, a lot of regulations are crap.
But some are useful.

It’s not a confusion. It simply is a tautology. If you set and enforce a limit – either through caps or strict regulations – then your emissions will not exceed the limits. As *any* competent economist will tell you placing or raising a tax on a good does not mean that less of that good will be produced or sold.

There are at least three reasons why; for the consumer the good may be a necessity, in which case the tax is irrelevant to the propensity to acquire the good. The consumer may also decide that the cost of alternatives to less consumption outweigh the benefits of reduced consumption. We see this mainly in cars where Americans prefer the safety of their modified light tanks to the fuel efficiency and presumed road kill potential of smaller vehicles. For the producer, the tax may not confer a competitive disadvantage.

For a carbon tax to succeed, it will have to not only pay all external cost, but probably a ‘penalty’ as well. I.e., if the goal is to reduce emissions,

[See? You are missing the point. The goal of the carbon tax is to internalise the externalities -W]

then the tax has to be high enough to actually do so. It is rather a strange argument to say that we can’t consider a tax paying all externalities – when it is precisely these externalities we’re trying to reduce/prevent.

In my part of the US we’ve seen gas prices climb 50% in less than 3 months with a corresponding *increase* in miles driven. This shows that simply increasing costs is no guarantee whatsoever that the good in question will suffer in sales or production.

P.S. – I have no idea which way is better – never given it much thought. Outlaw coal, start building nuclear, and get rid of the ridiculous gas guzzlers most Americans drive and the US’s contribution to the problem would at least be greatly reduced. I’d probably require solar or wind to some extent with every new building permit. Given the experiences of the last 30 years I have little faith in a market-based solution. CFC’s and acid rain show that either a regulatory or a market-based approach can work, but I suspect we’ll never see a comprehensive program in my estimated 20 years left on this planet 🙂

WC – of course a carbon tax is a step towards your “internalise the externalities” – but the goal is to reduce emissions & virtually *eliminate* the externalities – not make them simply economically pay for themselves. If producers and consumers are willing to pay the tax *without* reducing emissions has the tax succeeded?

[Yes. At least, it has done what the conventional economic version of the carbon tax intended to do. Your motives might be different -W]

And we certainly can’t internalise the externalities if we immediately take some of them off the table – as you have suggested upthread.

It’s a lose – lose proposition. No guarantee emissions will go down and a false claim that we’re now paying for the externalities. A feelgood solution that ain’t a solution at all.

[Errm, you’ve suddenly made a leap to “a false claim that we’re now paying for the externalities”. That was a bit weird -W]

Is it better than nothing? Sure. So what? Lots of things are better than nothing. Is it likely to solve our problem or meet our goals? Not that I can see.

“…t is worth keeping carbon pricing in perspective. It has become invested with such symbolic significance that it is inspiring some unhelpful purism on policy and magical thinking on politics.

Slowing climate change will require a suite of policies, regulatory reforms, and investments. Carbon pricing will be an important part of that portfolio. But only a part. It is not the only legitimate climate policy, the one true sign of seriousness on global warming, or a substitute for the difficult and painstaking political work that will be required to transition to a sustainable energy system.”

WC writes:”Yes. At least, it has done what the conventional economic version of the carbon tax intended to do”

This is the problem. The question was, has a carbon tax succeeded if emissions are not reduced? Your goal obviously is not to reduce emissions – just play some idealized economic theory game. This is precisely what David Roberts was talking about with his ‘purity’ line.

[Why make up false dichotomies? Why jump so soon to idealised-game? You need to think more broadly and avoid being stuck in a mental rut -W]

WC writes: [Errm, you’ve suddenly made a leap to “a false claim that we’re now paying for the externalities”. That was a bit weird -W]”

Economics takes a relatively short view.

[That is not true. You made it up. *Politics* may well take a short term view; don’t confuse that with economics -W]

Externalities are accounted for on what time basis? We’ve been over this before. 10 years? 30 years? 100 years at most?

[The answer is “none of the above”. Externalities are accounted for with an infinite time horizon, by discounting. You then get to argue over the discount rate; with commercial rates, there’s arguably an effective 30 year horizon, or somesuch, I’d need to look it up -W]

Yet we know the problems associated with global warming have effects on timescales much, much longer. Even the most pessimistic SCC estimates are likely *underestimates* simply because the effects don’t end for thousands of years. Economics just ignores that fact. So any claim that a carbon tax will pay for the externalities or internalise the externalities is a laugh. In the worst cases the costs of the externalities are infinite. How do we build *that* into the social cost of carbon?

> something like
First 2 results I get, yours will differ, beware the bubble:
———
About 4,640,000 results (0.41 seconds)
Search Results
US Fossil Fuel Subsidies Increase ‘Dramatically’ Despite …http://www.ibtimes.com/us-fossil-fuel-subsidies-in...
International Business Times
Nov 12, 2015 – In 2009, the G20 group of nations, which includes the United States, pledged to phase out “inefficient fossil fuel subsidies” to curb greenhouse …

[PDF]Progress Report on Fossil Fuel Subsidies – US Department …https://www.treasury.gov/…/US…
United States Department of the Treasury
A. Production Fossil Fuel Subsidies. There are a number of tax preferences, described below, available in the United States to producers of fossil fuels.

That sort of thing. Yes, if you distinguish a tax preference from a cash payment in a briefcase, or a check payable to, they’re different. Define subsidy, or why bother.
———–

> Externalities are accounted for with an infinite time horizon, by discounting.
> You then get to argue over the discount rate

How about this: we consider “CO2” the externality, and the time horizon is the rate at which it’s reduced over time. Then we can just argue over the climate sensitivity rate.

[“the time horizon is the rate at which it’s reduced over time” doesn’t make sense. You can’t compare a time to a rate. I think what you’re suggesting is somehow adapting the discount rate to the e-folding time of CO2 reduction. The answer to that idea is No; you’re mixing up two things: an economic discount rate and a physical process -W]

Does that make it any easier for us to end up having the same conversation?

Because right now I see a disconnect between the desired result (reducing CO2 in atmosphere and oceans back to what it was as of a week or two ago) and the econ stuff being slung. Slinged. Thrown around here.

[I am sorry to say that I think most people commenting here don’t have a good idea how economics works. Ive said this before in http://scienceblogs.com/stoat/2012/05/11/on-getting-out-more/ and it didn’t go down very well. I should stress that I’m not in a good position to teach or lecture either, because neither so I -W]

A carbon tax is a government-imposed intervention on the market. It is not “more free market!” as your title suggests. Again, there is a difference between you being “fine” with a carbon tax from your view of the free market and a carbon tax being “more free market!”. Regardless, I agree it’s a good start to decarbonize and I’m glad that your view of the free-market doesn’t stop you from thinking that (it does with plenty other free-market enthusiasts).

[I don’t really agree. A carbon tax affects prices, of course. But it doesn’t really affect the operation of the free market. People are at liberty to buy and sell, with minimal government intervention. Unlike permits, say, when they have to check with the govt whether they’re allowed to buy or sell at all -W]

So let’s get to the core issue. It seems incredibly optimistic to think that a carbon tax will lead us to decarbonized society alone. I’ve given a number of specific reasons as to why I think that. When I stated this you gave me a bit of a run around answer (and never really dealt with my examples). I read your post, the link, Timmy’s links and your comments to other posters and all I can see is carbon taxes will “internalise the externalities”.

I agree that’s what a carbon tax does. I agree that’s a good thing. I agree that it will change the market to reduce emissions some what (British Colombia as an example). I agree that a carbon tax is a great first step.

But – and this is the key point – it doesn’t get close to near zero emissions alone. Do you agree with this?

If you don’t, please, enlighten me on how it would. If you do agree, then what else is needed? Are those further measures “more free market!” or not?

[See my answer to K above: this needs a separate post to go through the details. But in brief: no, indeed, a carbon tax doesn’t guarantee you a solution. But it is much better than everything else -W]

“The integrated assessment models first estimate damages occurring after the emission release and into the future, often as far out as the year 2300. The models then discount the value of those damages over the entire time span back to present value to arrive at the SC-CO2. For example, the SC-CO2 for the year 2020 represents the present value of climate change damages that occur between the years 2020 and 2300 (assuming 2300 is the final year of the model run);”

Now perhaps there are estimates of damages (externalities) used to estimate the SCC that actually do use an infinite time horizon. I’ve read a dozen or more and haven’t seen one yet. A link would be appreciated.

[OK, if you like. I should have added “in theory”. People only bother out to 2300; that seems reasonable to me. If you apply a discount rate of 5% out 200 years you end up deflating costs by about 17,000. There’s not much point going any further out. And any attempt to predict the future of society more than 200 years ahead sounds like a waste of time to me, other than being vaguely aware that we’re going to end up melting Greenland; but we’re already committed to that -W]

# 50: (kto) If producers and consumers are willing to pay the tax *without* reducing emissions has the tax succeeded?

[WC:Yes. At least, it has done what the conventional economic version of the carbon tax intended to do. Your motives might be different -W]

#54: [WC: You did ask the question. However, it isn’t as simple as you think, and I didn’t answer yes. ]

*********************************************

Sorry, you did answer ‘Yes’. Or at least that’s what you wrote.

[Thanks for pointing out my inconsistency. However, notice that the “Yes”, whilst strictly in a sentence by itself, is intended to be qualified by what follows -W]

Now, if the goal of a carbon tax or ETS or regulatory approach is *NOT* to reduce emissions – then what is it?

Your infinite timeline turns out to be nothing of the sort, and indeed the 2300 is an outlier on the *long* horizon. Most studies are significantly shorter. And 5% discount rate? C’mon, let’s get real. When are the worst impacts of glacial melt – say the WAIS – supposed to take effect? In the next 100 years?

You realize that every error you’ve made is in one direction. Every exaggeration chosen to be in one direction. You’re pushing an ideology and not trying to solve a problem. Not even close to approaching the subject with an objective view of the evidence.

WC writes: “If you apply a discount rate of 5% out 200 years you end up deflating costs by about 17,000. There’s not much point going any further out.”

And that shrinks to 143 with a 2.5% discount rate and 1.22 (yes – that’s a decimal point after the 1) if we use the average interest being paid on savings accounts today as our basis. Of course it’s *below* 1 if we use the negative rates now prevalent in certain countries as our basis.

But hey – let’s pick 5% as our basis even though it’s 50 times larger than the average interest a savings account receives today!

[I don’t think even Stern, who used what was regarded as a very low discount rate, ever suggested using a negative rate; or using the savings interest rate.

https://yosemite.epa.gov/ee/epa/eerm.nsf/vwAN/EE-0568-06.pdf/$file/EE-0568-06.pdf looks like a useful document, though it takes a long time to get down to the nitty-gritty. There’s a discussion of Stern in box 6.6 which I think says he used 1.4%. I find ” For example, the current Interagency guidance for valuing CO2 emission reductions includes treatment with certainty-equivalent constant discount rates of 2.5 percent, 3 percent, and 5 percent” so it isn’t clear they share your dislike of 5%.

Update: belatedly I realise that 2300 isn’t ~200 years from now, it is ~300 years from now. So 5% is ~2M. Even 2.5% is 1.6k -W]

WC – what are interest on savings accounts getting today? Zero point one percent on average. What are future projections based on bonds or mortgages? There is no rationale basis from the evidence we have in front of us that a 5% discount rate is even close to the right number.

The fact no one has considered a negative discount rate smacks of poor risk assessment. Brings to mind the risk assessment software investment banks were using that didn’t allow for housing prices to depreciate. We know how that turned out. Sweden, Denmark, Switzerland, and Japan are among the countries that have negative interest rates. Plug that into your spreadsheet and it’s not pretty.

“Even” 2.5%? With interest rates currently at approximately zero, why would 2.5% be characterized thus? Sounds irrationally high.

WC writes: [“You can’t use the interest rate you’d get on your savings as a discount rate…]

And you can’t use mortgage rates or gilts or fed funds rates alone either – which is why I mentioned all of them. Since the discount rate is arbitrarily assumed in the IAMs, the relevant papers do not have a methodology for calculating it. Perhaps this is wrong:

“Economists often measure the discount rate using various market interest rates, including the savings rate at your bank and the 30-year U.S. Treasury bond.”

Crickets on the numerous negative and near zero federal rates we’ see around the world. One direction.

[I answered that, you just didn’t notice. Look at the yield curve, as I said -W]

Reflecting on WC’s comment that you can’t use the savings account interest rate as a discount rate I think it’s actually a better isolated basis than either Federal Funds rates or mortgage interest rates.

Loan rates have to be adjusted for inflation to get to the ‘real’ interest rate – which is close to what we want the discount rate to reflect. Interest paid on savings are not inflation adjusted, but they are profit adjusted – the bank has some interest (sic) in making money. I’ve never tried to find and run historical numbers, but my intuition tells me that the interest paid on savings will be closer to the real interest rate than either Fed Funds or mortgage rates.

The only ethical justification for a discount rate in this context is that future generations will be wealthier – and have a better ability to pay. So only one number really needs to be known – expected real GDP at any given point in the future.

But as we think on this further we realise that much of GDP growth is due to population growth. If future population growth is expected to be the same as past population growth we can extrapolate from past GDP growth to the future. This is not the case today; birthrates have been dropping. What we may want to do then is look at historical real GDP per capita and multiply by the expected population growth.

When you run these numbers it is very difficult to justify a discount rate of 2.5%, much less anything higher – especially if we weight recent economic history more than that of 50 or 100 years ago.

I also find it interesting that both Tol and Stern use a pure time discount rate of 0.1%. Stern says:

“For δ=0.1 per cent, there is an almost 10% chance of extinction by the end of a century. That itself seems high – indeed if this were true, and had been true in the past, it would be remarkable that the human race had lasted this long. Nevertheless, that is the case we shall focus on later in the Review, arguing that there is a weak case for still higher levels.”

It’s really a rather amazing discussion where he basically says: Ethically we should treat future generations preferences the same as today, but then we’ll discount their preferences anyways because they might not exist. And if you don’t like our low number we could have made it higher!

Otherwise I find the discussion of discount rate in Stern to be quite sound.

WC writes: “[I answered that, you just didn’t notice. Look at the yield curve, as I said -W]”

That was supposed to be an answer? So, if expected inflation over the next 30 years is estimated at 2%, you have a discount rate of 0.4% times the increase in population, with a few other minor adjustments we’ll ignore for now. Yet, you use 5% in argument – a number ten times larger. Odd.

[You asserted I’d ignored your idea of using *present day* interest rates for future discounting: ”Crickets on the numerous negative and near zero federal rates we’ see around the world”. I’m pointing out that I haven’t: the answer, which I suppose I need to repeat since this is going rather slowly, is that expectations of the markets are that those rates aren’t going to last, as reflected by the yield curves. So, it would be inappropriate to use present-day interest rates for the far future -W]

We factor out inflation because we want to assess relative wealth. The whole reason we would push this off to the future is that the future is assumed to be wealthier, but if there is 2% GDP growth and 2% inflation are they any wealthier? No. The discount rate is essentially an estimate of real GDP times population change.

Population is also taken into account because even at par growth/inflation, a given individual may not be wealthier, but the group as a whole (since there are more of them) is wealthier.

I’m getting the impression you really haven’t thought this through. My comment #69 was written before I read the Stern section on discount rates, but just thinking about it using basic economic logic. My comment #70 was written after having read Stern and found only one item that contradicted basic logic (the use of 0.1% as the pure time discount rate).

Suppose I buy a case of beer. Pay a deposit on the bottles, take it home, drink it. If there was a lot of inflation or I’m a very slow drinker, when I return the bottles I might get a larger amount of deposit refunded in nominal money than I paid to buy the beer in the first place.

Phil – if the increase in deposit is only adjusted for inflation then you have neither gained or lost. Except that if you had returned the bottles promptly and invested the money wisely you probably could have had investment income above the rate of inflation.

But finding a broker to invest your deposit money might be difficult unless you drink many, many, many cases of beer 🙂

An idea out of a science fiction story I just read (have to dig out a cite later): avoid the trade agreement rules about taxing carbon used making products. Instead tax the carbon cost for transportation, which (at least in the story) hasn’t been given protective regulations. Outcome (in the story) — a great many more zeppelins, which use far less carbon per pound per hour of transportation.

Phil – In a hyperinflation economy any monetary nominal gains are of course illusory. Assets with real value should be held as long as possible. Money should be transferred to other liquid assets.

In the beer example, after cashing it in you still only have the cost of one deposit. Yes, you’re holding much more cash in your hand than you paid for the original beer, but you can’t buy a beer with the new prices. And your refunded deposit cash will start losing value the moment it touches your hands. Better to hold the bottles or ask for the deposit money in a stable foreign currency. You won’t be making any return on investment by holding them, but at least you won’t be losing money as you would by returning them and holding cash.

If you wanted to argue for the “beer investment”, ie buying beer and returning the empties for a nominal gain, you would look at the nominal return and call it good.
An accurate accounting would factor out the inflation, and look at the real return.
Not only with hyperinflation, but also with longer time. If beer sells for around $1 per bottle, and the deposit is $0.05 per bottle. At 3% inflation, it would take about a century for the beer investment to be “profitable”.
We shouldn’t accept a carbon plan with economics as wrong as the “beer investment”.

Or react just to the following little snippet, as you wish:
—————————
Liberals are surprised to discover Smith’s compassion, along with his denunciations of oligarchy and inherited power. Open-minded conservatives and libertarians are reminded that Smith’s recommendation of vigorous market competition can only happen when things are relatively flat-open-fair, but cheaters are only thwarted by rules, by regulation. (The same is true in sports, democracy, science etc.)

Both sides need to be reminded that human beings are essentially delusional, and we prosper best when we are shown – competitively – our mistakes.

In an article – Stop Using Adam Smith and F.A. Hayek to Support Your Political Ideology – on the fast-rising Evonomics site, I show how both Smith and Friedrich Hayek offer no support for conniving, monopolistic concentrations of economic power. For markets, democracy, science, etc to deliver their fabulous, positive sum outcomes, there must be reciprocal accountability….

[The snippet you offer seems fair enough, though I don’t think Smith uses “cheaters”; the closest words I can think of around that are about monopoly or, effectively, cartel. I notice that “socialists” or (in UK terms) “labour” don’t react to Smith at all; presumably because they don’t read him -W]